Will Mass. Give Thanks for Managed Competition or Rate It a Turkey?

November 7, 2007

Massachusetts has three dates coming up that could be turning points in determining who gives thanks for the state’s new managed competition auto insurance system and who rates it a turkey.

Insurance Commissioner Nonnie Burnes has been telling people that Nov. 19 is the key date. That is the deadline for individual insurance companies to file rates for use beginning next spring. Burnes is counting on good drivers across the state feasting on news of lowered rates that day.

“I’m hoping that after Nov. 19, people will just calm down when we see that it’s very good for consumers,” Burnes told a recent industry meeting.

Citing reforms made to the state’s residual market and “strong support” for her deregulation initiative from her boss, Gov. Deval Patrick, Burnes invited executives at the annual meeting of the Property Casualty Insurers Association of America to consider entry into the state’s auto market.

“We are trying to free up this market so that companies can compete,” she said.

The department is holding twice-weekly teleconferences for insurers and others wanting to learn about the managed care system at which callers remain anonymous.

However, the calmness Burnes is hoping for on Nov. 19 may not arrive until Nov. 27. That’s the date by which insurers must file any amendments to their Nov. 19 filings. Most observers expect insurance executives to use the period between Nov. 19 and Nov. 27 to sample their competitors’ rate filings to see if their own needs spicing up.

Then there is Nov. 21, the day before Thanksgiving and the day the state Legislature closes up for the year. This could be the last hope of a group of lawmakers, consumer groups and some insurance agents who would like to carve out some changes in the managed competition system cooked up by Burnes.

This coalition, headed by Senator Dianne Wilkerson and Representative Antonio Cabral, claims to include more than 80 legislators from the House and Senate. It has also signed up consumer groups MASSPIRG, the Center for Insurance Research, the Consumer Federation of America and the Massachusetts Consumers’ Coalition; and some insurance agents.

This coalition is pushing a bill that would, among other things, make permanent in the law the ban on the use of credit scoring in auto insurance and restrict insurers to using a motorist’s experience and driving record as primary factors in setting rates.

The managed competition rules set forth by Burnes already instruct insurers on what they can’t use in their pricing and underwriting. They specifically bar insurers from considering income, education, occupation, marital status, homeownership and credit scores.

But Cabral, Wilkerson and other critics don’t want to leave these rules up to the current—or future– commissioner. They want to put the rules in statute. They are concerned that the regulations fashioned by Burnes open the way for companies to employ proxies for the banned factors, such as membership in a club or alumni association.

“All of us … support competition in auto insurance, but this competition must be fair, rates must be determined by driving record and not their socio-economic status of the insured,” Sen. Wilkerson said.

“How much we pay for auto insurance should be based on how well we drive, period, and not whether we are a landscaper or a CEO, married or single, a graduate of high school or grad school, or, for that matter, whether we’re watching tonight’s game from a local bar or a luxury box at Fenway,” said Deirdre Cummings of MASSPIRG.

Abington, Mass. independent insurance agent James Slattery is among the leaders of the agents who are trying to get the bill passed.

“We are the ones who, under the current plans, will have to tell drivers they were rejected by an insurer or that their rates went up, even though they have a perfect driving record. This bill will really protect all good drivers across the state,” said Slattery, who opposes insurers’ use of credit scoring.

Slattery says he has garnered support for the bill from several local agent associations, including ones for Cape Cod, Worcester, Brockton, Springfield, and the state association for exclusive representative producers (ERPs), agents without a voluntary contract from a carrier for auto.

Slattery said he and his followers want the law against credit scoring and proxies passed because they fear that it is “just a matter of time until the use of these factors is permitted.”

“Let me be clear about competition… We are in favor of our clients being able to shop for coverage. We are in favor of our clients being able compare premiums. We do want them save money and we welcome managed competition,” maintains Slattery. “It’s just that we want them to be evaluated based on their driving records … and not on how many credit cards they have in their wallet and not if they have had a claim on their dwelling policy and not if they were late with a mortgage payment. We don’t believe that those factors fairly determine what one should pay for auto insurance.”

The bill has the support of about half of the Senate, but could face a tough road in the House, where Speaker Sal DiMasi supports the Patrick Administration’s insurance plan.

The Massachusetts Association of Insurance Agents, representing more than 1,440 agencies, in the past opposed competitive rating. MAIA member agencies write nearly 95 percent of the private passenger auto insurance market under the heavily-regulated current system.

MAIA President and CEO Frank Mancini acknowledges that not all of his group’s members are happy about the move to managed competition at this time and that some members support the Cabral-Wilkerson bill.

But while Slattery stresses the legislation’s credit ban, Mancini notes that the bill is not just about credit scoring. The bill also would strengthen the role of the attorney general in reviewing rates filed by individual insurers. He worries the provision could stifle some of the pricing flexibility, product innovation and consumer discounts that the system is supposed to encourage.

Mancini said the bill would also allow the attorney general to seek discovery into the commissions each insurer pays agencies as well as allow insurers to write or not renew drivers based on mileage and years of licensing.

Current regulations allow the attorney general to participate in rate reviews but not to the extent sought by the Cabral-Wilkerson bill.

“We could have a hearing on every filing,” Mancini fears if the bill passes. “It’s uncharted territory and could tie up the whole process.”

Noting the Nov. 21 legislative adjournment, Mancini thinks the bill faces a tough road. “Timing is not on their side,” said Mancini. He also suspects Gov. Patrick would veto it if it passes.

Meanwhile, Mancini has his eye on another date: Nov. 8. That’s when his group’s annual convention kicks off in Boston and the number one topic among agents and insurers will be auto insurance.

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